<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 10-Q


(Mark one)

[X]     Quarterly report pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934.

For the quarterly period ended March 31, 1998 or

[ ]     Transition report pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934

For the transition period from ______________________ to ______________________

Commission File Number: 1-9641

                              IDENTIX INCORPORATED
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                           <C>       
                California                                               94-2842496
(State or other jurisdiction of incorporation of              (IRS Employer Identification No.)
              organization)
</TABLE>

510 N. Pastoria Avenue, Sunnyvale, California                         94086
---------------------------------------------                         -----
  (Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code (408) 731-2000

        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES [X]  NO [ ] 

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

        Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:

                        25,219,161 shares of Common Stock
                              as of April 30, 1998


<PAGE>   2
                              IDENTIX INCORPORATED

                                      INDEX


PART I         FINANCIAL INFORMATION

      Item 1   Financial Statements

               Consolidated Balance Sheets - March 31, 1998 and June 30, 1997

               Consolidated Statements of Operations - three months ended March
                 31, 1998 and 1997; and nine months ended March 31, 1998 and
                 1997

               Consolidated Statements of Cash Flows - nine months ended March
                 31, 1998 and 1997

               Notes to Consolidated Financial Statements

      Item 2   Management's Discussion and Analysis of Financial
                 Condition and Results of Operations

PART II        OTHER INFORMATION


      Item 1   Legal Proceedings


      Item 6   Exhibits


          Signatures



                                       2


<PAGE>   3
                                        IDENTIX INCORPORATED
                                     CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                           MARCH 31,             JUNE 30,
                                                                             1998                  1997
                                                                         ------------           ------------
                                                                          (UNAUDITED)
<S>                                                                      <C>                    <C>         
ASSETS
   Current assets:
     Cash and cash equivalents                                           $  1,930,000           $  2,510,000
     Accounts receivable, less allowance for doubtful accounts
       and sales returns of $791,000 and $625,000                          20,397,000             18,737,000
     Inventories                                                            7,662,000              5,295,000
     Prepaid expenses and other assets                                        848,000                323,000
                                                                         ------------           ------------
        Total current assets                                               30,837,000             26,865,000

   Property and equipment, net                                              2,282,000              2,567,000
   Intangibles and other assets                                             2,532,000              3,008,000
   Investment in joint venture                                                199,000                     --
                                                                         ------------           ------------
          Total assets                                                   $ 35,850,000           $ 32,440,000
                                                                         ============           ============

LIABILITIES AND SHAREHOLDERS' EQUITY
   Current liabilities:
     Notes payable to banks                                              $  2,770,000           $  1,919,000
     Accounts payable                                                       7,297,000              6,314,000
     Accrued compensation                                                   1,706,000              1,515,000
     Other accrued liabilities                                                741,000              1,079,000
     Deferred revenue                                                       1,046,000                561,000
                                                                         ------------           ------------
        Total current liabilities                                          13,560,000             11,388,000

   Deferred revenue                                                           166,000                 65,000
   Other liabilities                                                           89,000                 89,000
                                                                         ------------           ------------
        Total liabilities                                                  13,815,000             11,542,000
                                                                         ------------           ------------

   Commitments and contingencies (Note 6)

   Shareholders' equity:
     Common stock, no par; 50,000,000 shares authorized;
        25,216,478 and 24,942,778 shares issued and outstanding            52,343,000             51,283,000
     Accumulated deficit                                                  (30,127,000)           (30,204,000)
     Cumulative translation adjustment                                       (181,000)              (181,000)
                                                                         ------------           ------------
        Total shareholders' equity                                         22,035,000             20,898,000
                                                                         ------------           ------------
          Total liabilities and shareholders' equity                     $ 35,850,000           $ 32,440,000
                                                                         ============           ============
</TABLE>


       See accompanying notes to these consolidated financial statements.


                                       3


<PAGE>   4
                              IDENTIX INCORPORATED
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED                            NINE MONTHS ENDED
                                                              MARCH 31,                                    MARCH 31,
                                                -----------------------------------           -----------------------------------
                                                    1998                   1997                   1998                    1997
                                                ------------           ------------           ------------           ------------
<S>                                             <C>                    <C>                    <C>                    <C>         
Revenues:
   Net product revenues                         $  7,695,000           $  5,698,000           $ 24,691,000           $ 18,372,000
   Fingerprint services revenues                     364,000                     --                734,000                     --
   Services revenues                              10,943,000              6,567,000             32,180,000             17,558,000
                                                ------------           ------------           ------------           ------------
     Total revenues                               19,002,000             12,265,000             57,605,000             35,930,000
                                                ------------           ------------           ------------           ------------

Costs and expenses:
   Cost of product revenues                        3,861,000              2,676,000             11,971,000              9,220,000
   Cost of fingerprinting services revenues          347,000                     --                699,000                     --
   Cost of services revenues                       9,305,000              5,096,000             27,358,000             13,607,000
   Research, development and engineering           1,466,000                805,000              3,630,000              2,004,000
   Marketing and selling                           2,239,000              2,092,000              6,640,000              5,795,000
   General and administrative                      1,945,000              1,750,000              6,483,000              5,442,000
   Restructuring costs and
     translation adjustments                         717,000                     --                717,000                     --
                                                ------------           ------------           ------------           ------------


     Total costs and expenses                     19,880,000             12,419,000             57,498,000             36,068,000
                                                ------------           ------------           ------------           ------------

Income (loss) from operations                       (878,000)              (154,000)               107,000               (138,000)
Other income (expense), net                            9,000                 94,000                111,000                 93,000
Interest expense, net                                 (1,000)               (58,000)               (83,000)              (199,000)
                                                ------------           ------------           ------------           ------------

Net income (loss) before tax and
  interest in equity investments                    (870,000)              (118,000)               135,000               (244,000)
                                                ------------           ------------           ------------           ------------

Income taxes                                              --                     --                (25,000)                    --
Equity interest in joint venture, net of tax          (4,000)                    --                (33,000)                    --
                                                ------------           ------------           ------------           ------------


Net income (loss)                               $   (874,000)          $   (118,000)          $     77,000           $   (244,000)
                                                ============           ============           ============           ============


Basic earnings (loss) per share                 $      (0.03)          $       0.00           $       0.00           $      (0.01)
                                                ============           ============           ============           ============

Diluted earnings (loss) per share               $      (0.03)          $       0.00           $       0.00           $      (0.01)
                                                ============           ============           ============           ============

Weighted average common shares                    25,151,000             24,827,000             25,057,000             24,794,000
                                                ============           ============           ============           ============
Weighted average common
  shares assuming dilution                        25,151,000             24,827,000             25,704,000             24,794,000
                                                ============           ============           ============           ============
</TABLE>


       See accompanying notes to these consolidated financial statements.


                                       4


<PAGE>   5
                              IDENTIX INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                    FOR THE NINE MONTH PERIOD
                                                                          ENDED MARCH 31,
                                                                -----------------------------------
                                                                    1998                  1997
                                                                ------------           ------------
<S>                                                             <C>                    <C>          
Cash flows provided by operating activities:
  Net income (loss)                                             $     77,000           $   (244,000)
Adjustments to reconcile net income (loss) to net
    cash provided by (used for) operating activities:
  Depreciation and amortization                                    1,664,000              1,451,000
  Amortization of deferred revenue                                (1,391,000)              (636,000)
  Changes in assets and liabilities:
     Accounts receivable                                          (1,660,000)              (195,000)
     Inventories                                                  (2,367,000)            (1,790,000)
     Prepaid expenses and other assets                              (525,000)              (261,000)
     Accounts payable                                                983,000                984,000
     Accrued compensation                                            191,000                (22,000)
     Other accrued liabilities                                      (338,000)               374,000
     Deferred revenue                                              1,977,000                929,000
                                                                ------------           ------------

Net cash provided by (used for) operating activities              (1,389,000)               590,000
                                                                ------------           ------------

Cash flows used for investing activities:
  Capital expenditures                                              (737,000)            (1,122,000)
  Additions to intangibles and other assets                         (166,000)              (697,000)
  Investment in joint venture                                       (199,000)                    --
  Cash received in acquisitions                                           --                  6,000
                                                                ------------           ------------

Net cash used for investing activities                            (1,102,000)            (1,813,000)
                                                                ------------           ------------

Cash flows provided by financing activities:
  Borrowings under bank lines of credit                           13,641,000             14,149,000
  Payments under bank lines of credit                            (12,790,000)           (13,200,000)
  Principal payments on long-term note                                    --               (233,000)
  Proceeds from sale of common stock and warrants, net             1,060,000                914,000
  Other, net                                                              --                  2,000
                                                                ------------           ------------

Net cash provided by financing activities                          1,911,000              1,632,000
                                                                ------------           ------------

Effects of exchange rate changes on cash
  and cash equivalents                                                    --                  4,000
                                                                ------------           ------------

Net increase (decrease) in cash and cash equivalents                (580,000)               413,000

Cash and cash equivalents at beginning of period                   2,510,000                981,000
                                                                ------------           ------------

Cash and cash equivalents at end of period                      $  1,930,000           $  1,394,000
                                                                ============           ============
</TABLE>


       See accompanying notes to these consolidated financial statements.


                                       5


<PAGE>   6
IDENTIX INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

    These accompanying consolidated financial statements and related notes are
    unaudited. However, in the opinion of management, all adjustments
    (consisting only of normal recurring adjustments) which are necessary for a
    fair presentation of the financial position and results of operations for
    the interim period have been included. These consolidated financial
    statements should be read in conjunction with the audited consolidated
    financial statements and notes thereto for the fiscal year ended June 30,
    1997 included in the Company's Form 10-K. The results of operations for the
    three and nine months ended March 31, 1998 are not necessarily indicative of
    results to be expected for the entire fiscal year, which ends on June 30,
    1998.

    The consolidated financial statements include the accounts of Identix
    Incorporated (the "Company") and its wholly owned subsidiaries: ANADAC, Inc.
    ("ANADAC"), Identix Australia Pty Limited, which was formerly know as
    Fingerscan Pty Limited ("Identix Australia"), and Biometric Applications and
    Technologies, Inc. ("BA&T").

    The Company acquired BA&T on July 23, 1997. The Company accounted for the
    acquisition of BA&T as a pooling of interests. Accordingly, the consolidated
    statement of operations for the three and nine month periods ended March 31,
    1997 and the consolidated statement of cash flows for the nine month period
    ended March 31, 1997 have been restated to include the accounts and results
    of operations of BA&T and the consolidated balance sheet as of June 30, 1997
    has been restated to include the accounts and results of operations of BA&T.
    For the periods prior to fiscal 1997, the effects of the combination with
    BA&T were not significant, and the Company has not restated those years to
    include the accounts and results of operations of BA&T.


2.  JOINT VENTURE

    On September 30, 1997, the Company entered into a joint venture agreement
    with Sylvan Learning Centers, Inc. to form Sylvan/Identix Fingerprinting
    Center, L.L.C. for the purpose of providing fingerprinting services through
    Sylvan's testing systems nationwide. The Company owns a 50% interest in the
    joint venture.

    For certain contracts held by Identix prior to the joint venture, Identix
    subcontracts the fingerprinting services to the joint venture. Revenues
    received by Identix under these contracts are presented separately as
    fingerprint services in the consolidated statement of operations.

3.  INVENTORIES

    Inventories are stated at the lower of cost (determined on the first-in,
    first-out cost method) or market. Inventories consisted of the following:


<TABLE>
<CAPTION>
                                                          MARCH 31,          JUNE 30,
                                                            1998               1997
                                                         ----------         ----------
<S>                                                      <C>                <C>       
    Purchased parts and materials                        $2,658,000         $3,027,000
    Work-in-process                                       1,204,000          1,076,000
    Finished goods, including spares                      3,800,000          1,192,000
                                                         ----------         ----------
                                                         $7,662,000         $5,295,000
                                                         ==========         ==========
</TABLE>


4.  EARNINGS PER SHARE

    Basic earnings per share is computed using the weighted average number of
    common shares outstanding during the period. Diluted earnings per share is
    computed using the weighted average number of common shares outstanding
    during the period after considering the effect of dilutive common stock
    options and warrants under the treasury method.

    Previously reported earnings per share have been restated to comply with
    Statement of Financial Accounting Standards No. 128, "Earnings per Share."


                                       6


<PAGE>   7

<TABLE>
<CAPTION>
                                                          Three Months Ended                      Three Months Ended
                                                            March 31, 1998                          March 31, 1997
                                               ---------------------------------------   ------------------------------------
Basic earnings per share computation:           Net Income      Shares       Per-Share   Net Income      Shares     Per-Share
                                               (Numerator)   (Denominator)     Amount   (Numerator)  (Denominator)    Amount
<S>                                            <C>           <C>             <C>        <C>          <C>            <C>    
Basic earnings per share:
  Income available to common shareholders      $   (874,000) $ 25,151,000     $ (0.03)   $(118,000)    24,827,000     $(0.00)
                                                                              =======                                 ======

Effect of dilutive securities:
  Stock options and warrants                                           --(1)                                   --(1)
                                                             ------------                              ----------

Dilutive earnings per share:
  Income available to common
  shareholders plus assumed  
  conversions                                  $   (874,000) $ 25,151,000     $ (0.03)   $(118,000)  $24,827,000      $(0.00)
                                                                              =======                                 ======
</TABLE>


<TABLE>
<CAPTION>
                                                          Nine months Ended                        Nine months Ended
                                                            March 31, 1998                          March 31, 1998
                                               ---------------------------------------   ------------------------------------

Basic earnings per share computation:           Net Income      Shares       Per-Share   Net Income      Shares     Per-Share
                                               (Numerator)   (Denominator)     Amount   (Numerator)  (Denominator)    Amount
<S>                                            <C>           <C>             <C>        <C>          <C>            <C>    

Basic earnings per share:
  Income available to common
  shareholders                                 $     77,000    25,057,000     $  0.00    $(244,000)    24,794,000    $(0.01)
                                                                              =======                                 ======


Effect of dilutive securities:
  Stock options and warrants                                      647,000                                      --(1)
                                                             ------------                              ----------

Dilutive earnings per share:
  Income available to common
  shareholders plus assumed         
  conversions                                  $     77,000    25,704,000      $ 0.00    $(244,000)    24,794,000     $(0.01)
                                                                              =======                                 ======
</TABLE>


(1) The effect of dilutive securities has been omitted when the effect is
anti-dilutive.

5.   RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1997, the Financial Accounting Standards Board ("FASB") issued
    Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
    Income" ("SFAS 130"). This statement is effective for the Company's fiscal
    year ending June 30, 1999. The statement establishes presentation and
    disclosure requirements for reporting comprehensive income as defined.
    Comprehensive income includes charges or credits to equity that are not the
    result of transactions with owners. The Company plans to adopt the
    disclosure requirements and report comprehensive income as part of the
    Consolidated Statements of Shareholders' Equity as required under SFAS 130,
    and expects there to be no material impact on the Company's financial
    position and results of operations as a result of the adoption of this new
    accounting standard.

    In June 1997, FASB issued Statement of Financial Accounting Standards No.
    131 "Disclosures about Segments of an Enterprise and Related Information"
    ("SFAS 131"). This statement is effective for the Company's fiscal year
    ending June 30, 1999. This statement requires the Company to report certain
    financial information about operating segments in complete sets of financial
    statements of the Company and in condensed financial statements of interim
    periods. It also requires that the Company report certain information about
    its products and services, the geographic areas in which it operates and its
    major customers. The method FAS chose for determining what information to
    report is referred to as the "management approach". The management approach
    is based on the way that management organizes the segments within the
    enterprise for making operation decisions and assessing performance. The
    Company's management has not yet completed its assessment of how the "
    management approach" will impact segment disclosures.

6.  CONTINGENT LIABILITIES

    May 31, 1995, Digital Biometrics, Inc. ("DBI"), a competitor, filed a
    lawsuit in the United States District Court in the Northern District of
    California against the Company alleging that certain of the Company's
    TouchPrint products violate a DBI patent and seeking injunctive relief and
    unspecified damages. The lawsuit has no implication for other Identix


                                       7


<PAGE>   8
    products. On August 22, 1996, the Court granted the Company's motion
    determining that the TouchPrint 600 does not infringe the patent. On
    December 7, 1996, the Court issued another ruling determining that the
    predecessor product of the TouchPrint 600, the TouchPrint 900 product, did
    not infringe the patent. As a result, the Court entered judgment in favor of
    Identix and awarded Identix its costs of suit. On January 7, 1997, DBI filed
    a Notice of Appeal. Oral argument on that appeal was held before the Federal
    Circuit Court of Appeals on October 8, 1997 and the matter is under
    consideration by the Court.


                                       8


<PAGE>   9
ITEM 2.                        IDENTIX INCORPORATED
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The statements in this report that relate to future plans, events, or
performance are forward-looking statements. Actual results, events and
performance may differ materially due to a variety of factors including the
factors described under "Risk Factors" below. The Company undertakes no
obligation to publicly update these forward-looking statements to reflect
events or circumstances that occur after the date hereof or to reflect the
occurrence of unanticipated events.


OVERVIEW

Identix Incorporated ("Identix" or "the Company") designs, develops,
manufactures and markets comprehensive solutions for the capture or comparison
of fingerprints for security, fraud prevention, law enforcement and other
applications. Identix's products are classified into two groups: (i) biometric
identity verification ("Bio-ID") products that verify the identify of an
individual through the unique biological characteristics of a fingerprint and
(ii) biometric imaging products that electronically capture forensic quality
fingerprint images directly from an individual's fingers for law enforcement and
other applications. The Company provides information technology, engineering and
management consulting services to private and public sector clients through a
wholly owned subsidiary, ANADAC, Inc. ("ANADAC"). ANADAC's services support the
development, installation, integration, and operation of hardware and software
technology solutions, including Identix products, for a variety of client
operating environments.

On July 23, 1997, the Company acquired Biometric Applications and Technology,
Inc. ("BA&T"), a privately held developer of biometric and "smart" card
applications and solutions. BA&T had been a software development partner that
integrated its software with Identix's Bio-ID products. The acquisition was
accounted for as a pooling of interests. Accordingly, the Company's fiscal 1997
consolidated financial statements include the accounts and results of operations
of BA&T. For the periods prior to fiscal 1997, the effects of the combination
with BA&T were not significant, and the Company has not restated those years to
include the accounts and results of operations of BA&T.

On September 30, 1997, the Company entered into a joint venture agreement with
Sylvan Learning Centers, Inc. to form Sylvan/Identix Fingerprinting Centers LLC
("SIFC") for the purpose of providing fingerprinting services through Sylvan's
testing centers nationwide.


RESULTS OF OPERATIONS

Revenues

Revenues for the three and nine month periods ended March 31, 1998 were
$19,002,000 and $57,605,000, respectively, compared to $12,265,000 and
$35,930,000 for the same periods in the prior fiscal year. For the three and
nine month periods ended March 31, 1998 the increase in revenues of 55% and 60%
is due to increases in both the Company's net product revenues and services
revenues.

The Company's net product revenues were $7,695,000 and $24,691,000 for the three
and nine month periods ended March 31, 1998, respectively, compared to
$5,698,000 and $18,372,000 for the same periods in the prior fiscal year. For
the three and nine month periods ended March 31, 1998, the increases in net
product revenues of 35% and 34% were due to increased shipments of the Company's
biometric imaging product group, mainly the TouchPrint 600 product line. In
addition, increased sales of the TouchPrint 600 product line have generated
additional revenues from maintenance support agreements and related customer
support. The increase in biometric imaging sales was partially offset by a
decline in the company's Bio-ID product group sales, which resulted primarily
from a decline in sales in Asia related to the adverse economic events in Asia.
International sales accounted for $1,062,000 or 14% and $5,519,000 or 22% of the
Company's net product revenues for the three and nine month periods ended March
31, 1998, respectively, compared to $1,909,000 or 34% and $5,819,000 or 32% for
the same periods in the prior fiscal year. The decrease in international sales
for the three and nine month periods was due to a decline in sales in Asia. The
Company expects international sales to continue to represent a significant
portion of net product revenues although the percentage may fluctuate from
period to period. The Company's international sales are denominated in U.S.
dollars except for sales by Identix Australia which are denominated in
Australian dollars. The Company actively monitors its foreign currency exchange
exposure and, if significant, will take action to reduce foreign exchange risk.
To date, the Company has not entered into any hedging transactions. For the
three month period


                                       9


<PAGE>   10
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .


ended March 31, 1998, the Company had one product business customer that
accounted for 11% of total revenues. The Company did not have any product
customer account for more than 10% of total revenues for the nine month period
ended March 31, 1998.

The Company's fingerprinting service revenues were $364,000 and $734,000 for the
three and nine month periods ended March 31, 1998. On September 30, 1997, the
Company entered into a joint venture agreement with Sylvan Learning Systems,
Inc. for the purpose of providing fingerprinting services through Sylvan's
testing centers nationwide. For certain contracts that Identix held prior to the
commencement of the joint venture, Identix subcontracts the fingerprinting
services to SIFC at amounts equal to the amounts billed to the customers;
therefore, no gross margin is recognized by the Company except for a 5% license
fee charged to SIFC for use of certain of the Company's trademarks.

The Company's services revenues were $10,943,000 and $32,180,000 for the three
month and nine month periods ended March 31, 1998 compared to $6,567,000 and
$17,558,000 for the same periods in the prior fiscal year. The increases in
services revenues of 67% and 83% for the three and nine month periods ended
March 31, 1998, respectively, were due primarily to increases in U.S. government
purchases through the Company's General Services Administration ("GSA") contract
which is operated and maintained by ANADAC. The GSA contract allows Government
agencies to purchase the Company's products and services as well as third party
products and services at agreed upon prices and rates. The Company and the
General Services Administration negotiate the prices and rates periodically or
as new products or services are added. The majority of the Company's services
revenues are generated directly from contracts with the U.S. government,
principally the Department of Defense ("DOD"). For the three and nine month
periods ended March 31, 1998, revenues directly from the DOD and from other U.
S. government agencies accounted for 88% and 87% of the Company's total services
revenues compared to 75% and 72% for the same periods in the prior fiscal year.

The Company's services business generates a significant amount of its revenues
from cost plus fixed fee ("CPFF") contracts, which accounted for approximately
20% of its services revenues for both the three and nine month periods ended
March 31, 1998, compared to 39% and 45% for the same periods in the prior fiscal
year. The decrease in the percentage of services revenues generated by CPFF
contracts is due in part to the increase in third party services purchased
through the GSA


                                       10


<PAGE>   11
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .

contract. CPFF contracts provide for the reimbursement of allowable costs,
including indirect costs plus a fee or profit. The Company's services business
also generates revenue from time-and-materials ("T&M") contracts and from firm
fixed-price ("FFP") contracts. During the three and nine month periods ended
March 31, 1998, the Company derived approximately 18% of its services revenues
from T&M and FFP contracts compared to 49% and 41% for the same periods in the
prior fiscal year. The decrease in the percentage of services revenues generated
by T&M and FFP contracts is due to the increase in third party services
purchased through the GSA contract. T&M contracts typically provide for payment
of negotiated hourly rates for labor incurred plus reimbursement of other
allowable direct and indirect costs. FFP contracts provide for a fixed price for
stipulated services or products, regardless of the costs incurred, which may
result in losses from cost overruns. The Company assumes greater performance
risk on T&M and FFP contracts and the failure to accurately estimate ultimate
costs or to control costs during performance of the work can result in reduced
profit margins or losses. There can be no assurance that the Company's services
business will not incur cost overruns for any FFP and T&M contracts it is
awarded. In addition, revenues generated from contracts with government agencies
are subject to audit and subsequent adjustment by negotiation between the
Company and representatives of such government agencies. ANADAC is currently
under going an audit by the Defense Contract Audit Agency ("DCAA") for the
period form July 1, 1992 to June 30, 1995.

Gross Margin

Gross margin on net product revenues was 50% and 52% for the three month and
nine month periods ended March 31, 1998, respectively, as compared to 53% and
50% for the same periods in the prior fiscal year. The decrease in gross margin
for the three month period was primarily due to unfavorable currency
fluctuations causing price reductions in certain international markets and
certain lower margin sales made to introduce products to new geographic regions.
The increase in gross margin for the nine month period ended March 31, 1998 was
primarily due to (i) the favorable mix of higher gross margin products, (ii)
cost reductions in certain components of the biometric imaging and Bio-ID
product lines and (iii) increased manufacturing efficiencies resulting from the
increase in unit volume. The Company expects gross margins to fluctuate in
future periods due to changes in the product mix, the costs of components and
the competition in the industry.

Gross margin on fingerprinting service revenues was 5%. Identix receives a
licensing fee for use of certain of the Company's trademarks.

Gross margin on services revenues was 15% for the three and nine month periods
ended March 31, 1998 as compared to 22% and 23% for the same periods in the
prior fiscal year. The decreases in gross margin for the three and nine month
periods were primarily due to an increase in third party services purchased
through the GSA contact maintained by ANADAC. When the Company sells third party
services through the GSA contract, the Company earns a fee based on a percentage
of the third party purchased services. The fee earned on third party services is
typically less than the fee earned on services directly provided by the Company.

Research, Development and Engineering

Research, development and engineering expenses were $1,466,000 or 19% and
$3,630,000 or 15% of net product revenues for the three and nine month periods
ended March 31, 1998, respectively, compared to $805,000 or 14% and $2,004,000
or 11% of net product revenues for the same periods in the prior fiscal year.
The increase in research, development and engineering expenses is primarily due
to the addition of engineering staff and related expenses to further develop and
enhance the Company's products including BA&T's Bio-ID software products. The
Company believes that investment in research and development is critical to
maintaining a strong technological position in the industry and therefore
expects research, development and engineering expenses to continue to increase
in absolute dollars in future calendar 1998 quarters.

Marketing and Selling

Marketing and selling expenses were $2,239,000 or 12% and $6,640,000 or 12% of
total revenues for the three and nine month periods ended March 31, 1998
compared to $2,092,000 or 17% and $5,795,000 or 16% of total revenues for the
same periods in the prior fiscal year. The increase in marketing and selling
expenses in absolute dollars is due to the increased staffing and expenses to
promote the Company's products and services and to expand its customer support
organization.


                                       11


<PAGE>   12
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .

General and Administrative

General and administrative expenses were $1,945,000 or 10% and $6,483,000 or 11%
of total revenues for the three and nine month periods ended March 31, 1998,
respectively, compared to $1,750,000 or 14% and $5,442,000 or 15% of total
revenues for the same period in the prior fiscal year. The increase in general
and administrative expenses was primarily due to an increase in staffing and
other related administrative expenses to support the growth in operations and
the development of supporting infrastructure including BA&T's operations. The
increase was partially offset by a decrease in litigation reserves and expenses
which were $10,000 and $470,000 for the three months and nine months ended March
31, 1998 compared to $71,000 and $707,000 for the same periods in the prior
fiscal year.

Restructuring Costs and Currency Translation Adjustments

Restructuring costs and currency translation adjustments were $717,000 or 4% and
1% of total revenues for the three and nine month period ended March 31, 1998,
respectively. The costs were primarily due to the reorganization charges taken
for severance and related expenses in the streamlining of the Company's
international sales operations and currency translation adjustments.

Other Income and Expense, net

For the three and nine month periods ended March 31, 1998, net other income was
$9,000 and $111,000 compared to net other income of $94,000 and $93,000,
respectively, for the same periods in the prior fiscal year.

Net Interest Expense

Net interest expense was $1,000 and $83,000 for the three and nine month periods
ended March 31, 1998, respectively, compared to $58,000 and $199,000 for the
same periods in the prior fiscal year. The difference was due to reduced
borrowings under the Company's lines of credit during the three and nine month
periods ended March 31, 1998 compared to the same periods in the prior fiscal
year.

During the three and nine month periods ended March 31, 1998, the weighted
average interest rate paid by the Company on borrowings under its line of credit
(the "Identix Line of Credit") was 8.5%. The weighted average interest rate paid
by ANADAC on borrowings under its bank line of credit (the "ANADAC Line of
Credit") during the three and nine month periods ended March 31, 1998 was 8.5%,
also.

Income Taxes

The provision for income taxes was $25,000 for the nine months ended March 31,
1998. The Company's tax rate is below the statutory rate due to significant
operating loss carryforwards incurred in prior years. The Company is subject to
certain alternative minimum tax requirements for which an estimate is made based
on the Company's anticipated effective tax rate at the end of the fiscal year.

Equity Interest in Joint Venture, Net of Tax

The equity interest in joint venture, net of tax, represents the Company's share
of the results of SIFC. For the three and nine month periods ended March 31,
1998, equity interest in joint venture net of tax, was a loss of $4,000 and
$33,000, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company financed its operations during the three and nine months ended March
31, 1998 primarily from its existing working capital at June 30, 1997 and
borrowings under the Identix Line of Credit and the ANADAC Line of Credit. As of
March 31, 1998, the Company's principal sources of liquidity consisted of $ 17.3
million of working capital including $1.9 million in cash and cash equivalents,
the Identix Line of Credit and the ANADAC Line of Credit.

The Identix Line of Credit is a $6,000,000 bank line of credit secured by the
personal property of Identix. Under the bank


                                       12


<PAGE>   13
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .

line of credit, the Company may borrow up to 80% of eligible accounts receivable
and may borrow up to 35% of eligible inventory. Amounts drawn bear interest at
the bank's prime rate of interest (8.5% at March 31, 1998). The line of credit
expires on August 28, 1998. At March 31, 1998, $1,600,000 was outstanding and
$4,400,000 was available under the Identix Line of Credit. The Identix Line of
Credit agreement contains financial and operating covenants, including
restrictions on the Company's ability to pay dividends on the Company's common
stock.

The ANADAC Line of Credit is a $6,000,000 bank line of credit secured by
ANADAC's accounts receivable and certain other assets. Under the ANADAC Line of
Credit, ANADAC may borrow against qualified accounts receivable. Amounts drawn
bear interest at the bank's prime rate of interest (8.5% at March 31, 1998). The
line of credit expires on November 30, 1998. At March 31, 1998, $1,170,000 was
outstanding and $4,818,000 was available under the ANADAC Line of Credit. The
ANADAC Line of Credit agreement contains financial and operating covenants.

The Company used cash of $1,389,000 in its operating activities during the nine
months ended March 31, 1998 primarily due to increases in accounts receivable of
$1,660,000 and inventory of $2,367,000. These uses of cash were partially offset
by increases in deferred revenue of $1,977,000 and accounts payable of $983,000.
The increase in accounts receivable was due primarily to an increase in total
revenues, and the increase in inventories was due primarily to the stocking of
certain inventory for the Company's Bio-ID and biometric imaging product groups.
The increase in deferred revenue was primarily due to an increase in the number
of TouchPrint 600 systems under maintenance contracts. The increase in accounts
payable was due to financing the increase in inventories and timing of vendor
payments.

The Company used cash of $1,102,000 in investing activities during the nine
months ended March 31, 1998 consisting of purchases of property and equipment of
$737,000, investment in SIFC of $199,000 and additions to intangibles and other
assets of $166,000.

The Company generated cash of $1,911,000 from financing activities during the
nine months ended March 31, 1998. Financing activities consisted of increased
net borrowings against the Company's lines of credit of $851,000 and proceeds
from exercises of stock options to purchase common stock of $1,060,000.

Identix did not have any material capital expenditure commitments as of March
31, 1998.

The Company believes that cash flow from operations together with existing
working capital and two bank lines of credit maintained by the Company will be
adequate for the Company's cash requirements for calendar 1998. However, the
Company may require additional equity or debt financing beyond the amounts
currently forecasted by the Company to meet its working capital or capital
equipment needs. There can be no assurance that the Company would be able to
obtain such financing or that the terms of financing would be favorable to the
Company.


                                       13


<PAGE>   14
RISK FACTORS

The Company's future operations, financial performance, business and share price
may be affected by a number of factors, including the following, any of which
could cause actual results to vary materially from any forward-looking
statements made by the Company in this Report on Form 10-Q or in other reports,
press releases or other statements issued from time to time.

FLUCTUATIONS IN QUARTERLY RESULTS

The Company's quarterly operating results have in the past been, and will
continue to be, subject to significant variations resulting from a number of
factors, many of which are outside of the Company's control and any one of which
could substantially affect the Company's results of operations for any
particular fiscal period. The Company's revenues in any period have been, and in
the near term are expected to be, derived from large orders from a limited
number of customers. Accordingly, revenues in a particular quarter will be
dependent upon the timing and size of major orders and the timing of recognition
of revenues from those orders. A majority of the Company's revenues are derived
from the sale of products and services directly to governmental agencies or
original equipment manufacturers ("OEMs"), systems integrators or resellers who
sell products and services to government agencies. Government agencies are
subject to political and budgetary constraints and orders from them may be
canceled or substantially delayed or the receipt of revenues or payments
substantially delayed due to political and budgetary processes or other
scheduling delays relating to the contract or bidding process. In addition, the
Company's contracts with local government agencies may be contingent upon
availability of matching funds from state or federal entities. Other factors
which can result in fluctuations in quarterly results of operations include
budgetary and purchasing cycles of government agencies; changes in the mix of
products and services sold and the mix of product sales by distribution
channels; the pricing of existing and future products by the Company's
competitors; the introduction of new or enhanced products by the Company or its
competitors and the market acceptance thereof; expenses related to, and results
of, litigation; percentage of and costs associated with FFP contracts and T&M
contracts; the availability and cost of key components; and fluctuations in
general economic conditions. The Company also may choose to reduce prices or to
increase spending in response to competition or to pursue new market
opportunities, all of which may adversely affect the Company's business,
financial condition and results of operations. Further, the lead-time for
ordering parts and materials and building the Company's products can be many
months and the Company orders parts and materials and builds products based on
its forecasted demand for the products. If demand for the Company's products
lags significantly behind the Company's forecasts, the Company runs the risk of
building too large an inventory, which may adversely affect cash flow and may
result in write-offs or writedowns of inventory because of product obsolescence.
Due to the foregoing factors, the Company's operating results may differ from
the expectations of securities analysts and investors, which could adversely
affect the trading price of the Company's common stock. The Company believes
that period-to-period comparisons of its results of operations should not be
relied upon as indications of future performance.

DEPENDENCE UPON NEW AND UNCERTAIN MARKETS; UNCERTAINTY OF MARKET ACCEPTANCE

Substantially all of the Company's product revenues to date have been, and for
the foreseeable future are anticipated to be, derived from Bio-ID products and
biometric imaging products. These products represent new technologies, which
have not gained widespread commercial acceptance. In particular, Bio-ID products
represent a new approach to identity verification, which has only been used in
limited applications to date. The expansion of the market for the Company's
products depends on a number of factors, including the cost and reliability of
the Company's products and products of competitors, customers' perception of the
perceived benefits of these products, public perceptions of the intrusiveness of
these products and the manner in which agencies are using the fingerprint
information collected, public confidence as to confidentiality of private
information, customers' satisfaction with the Company's products and publicity
regarding these products. Public objections have been raised as to the use of
biometric products for some applications on civil liberties grounds. The
Company's future success is dependent upon the development and expansion of
markets for Bio-ID products and biometric imaging products both domestically and
internationally. In addition, even if markets develop for Bio-ID products and
additional markets develop for biometric imaging products, there can be no
assurance that the Company's products will gain wide market acceptance in these
markets. A number of factors may limit the market acceptance of the Company's
products, including the performance and price of the Company's products compared
to competitive products or technologies, the practicalities of developing the
infrastructure necessary to support certain Bio-ID applications such as ATMs and
point-of-sale applications, the nature of technological innovations and new
product development activities by the Company and its competitors, and the


                                       14


<PAGE>   15
extent of marketing efforts by the Company's collaborators or partners. If the
markets for the Company's products fail to develop or develop more slowly than
anticipated or if the Company's Bio-ID products fail to gain wide market
acceptance, or biometric imaging products lose market share, the Company's
business, financial condition and results of operations would be materially and
adversely affected.

COMPETITION AND TECHNOLOGICAL CHANGE

The markets for Bio-ID products and biometric imaging systems are extremely
competitive and are characterized by rapid technological change, both as a
result of technical developments exploited by competitors, the changing
technical needs of customers and frequent introductions of new features. The
Company expects competition to increase as other companies introduce additional
and more competitive products. In order to compete effectively in this
environment, the Company must continually be able to develop and market new and
enhanced products and market those products at competitive prices. There can be
no assurance that the Company will be able to make the technological advances
necessary to compete successfully in its products business. Some of the
Company's present and potential competitors have financial, marketing and
research resources substantially greater than those of the Company. Existing and
new competitors may enter or expand their efforts in the Company's product
markets, or develop new products to compete against the Company's products. No
assurance can be given that the Company's competitors will not develop new
technologies or enhancements to existing products or introduce new products that
will offer superior price or performance features or that new products or
technologies will not render obsolete the products of the Company. Recently, a
significant number of established and startup companies have become engaged in
developing software and hardware for fingerprint biometric identification
applications that could compete directly with the Company's Bio-ID products,
including a number of companies that are developing semiconductor or
optically-based direct contact fingerprint image capture devices. In addition,
other companies are developing currently or have developed other methods of
biometric identification such as retinal blood vessel or iris pattern, hand
geometry, voice and facial structure, which could significantly reduce the
potential market for the Company's products if widely adopted. The Company's
Bio-ID products also face competition from non-biometric technologies such as
traditional key, card and surveillance systems, PINs and similar traditional
verification methods. The Company believes that in an effort to remain
competitive in the future it will need to invest increasing financial resources
in research and development.

In its services business, the Company faces substantial competition from
professional services providers of all sizes in the government professional
services market. ANADAC is increasingly being required to bid on FFP and similar
contracts that result in greater performance risk to ANADAC. If ANADAC is not
able to maintain a competitive cost structure, support specialized market
niches, retain its highly qualified personnel or align with technology leaders,
its ability to compete successfully will be materially and adversely affected.

DEPENDENCE ON NEW PRODUCT INTRODUCTIONS

The Company's future success will depend upon its ability to address the needs
of the market by enhancing its current products and by developing and
introducing new products on a timely basis that keep pace with technological
developments and emerging industry standards (including FBI accreditation
standards), respond to evolving customer requirements and achieve market
acceptance. The development of new, technologically-advanced products and
product enhancements is a complex and uncertain process requiring high levels of
innovation, as well as the accurate anticipation of technological and market
trends. Any failure by the Company to anticipate or adequately respond to
technological developments or end user requirements, or any significant delays
in product development or introduction, could result in a loss of
competitiveness or revenue. There can be no assurance that the Company will be
successful in developing and marketing product enhancements or new products on a
timely basis if at all, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and sale of
these products, or that any of its new products and product enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance. If the Company is unable, for technological or any other reason, to
develop, introduce and sell its products in a timely manner, the Company's
business, financial condition and results of operations would be materially and
adversely affected. In addition, because a number of the Company's biometric
imaging products and Bio-ID products are incorporated into systems marketed by
other companies, or are co-marketed together with other products or services
sold by other companies, the failure to introduce products in a timely manner
may cause such companies to seek alternative suppliers or marketing partners.
From time to time, the Company or its present or future competitors may announce
new products, capabilities or technologies that have the potential to replace
the Company's existing products. There can be no assurance that announcements of
currently planned or other new products will not cause customers to delay or
alter their purchasing decisions in anticipation of such products, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, new 


                                       15


<PAGE>   16
product introductions may contribute to fluctuations in quarterly operating
results or result in the early obsolescence of the Company's products, because
customers may forego ordering the Company's existing products. If the Company's
new products have reliability or quality problems, the Company may experience
reduced orders, higher manufacturing costs, delays in collecting accounts
receivable and additional service and warranty expense.

DEPENDENCE ON STRATEGIC RELATIONSHIPS FOR PRODUCT DISTRIBUTION

The Company's strategy for the distribution of certain of its products requires
entering into various strategic relationships with OEMs, systems integrators and
resellers. Some of these relationships are formalized in agreements; however,
such agreements are often terminable with little or no notice, and subject to
periodic amendment. Although the Company believes that the OEMs, systems
integrators and resellers with which it works have an economic motivation to
promote or use the Company's products, the amount and timing of resources to be
devoted to these activities are not within the control of the Company. There can
be no assurance that such parties will actively promote the Company's products
or pursue installations which use the Company's equipment, that any distribution
or other arrangements with the Company will not be terminated or renegotiated or
that the Company will derive any revenues from such arrangements. The Company
intends to continue to seek strategic relationships to distribute and sell
certain of its products. There can be no assurance that the Company will be able
to negotiate acceptable strategic relationships in the future or that current or
future strategic relationships will be successful.

PUBLIC AGENCY CONTRACT CONSIDERATIONS

A majority of the Company's revenues are derived from the sale of products and
services either directly to governmental agencies or to OEMs, systems
integrators or resellers who sell products to government agencies. Government
agencies frequently require provisions in contracts that are not standard in
private commercial transactions, such as bonding requirements and provisions
permitting the purchasing agency to cancel the contract without penalty if
funding for the contract is no longer available or is not obtained. As public
agencies, the Company's prospective customers are also subject to public agency
contract requirements, which vary from jurisdiction to jurisdiction. Future
sales to public agencies will depend on the Company's ability to meet public
agency contract requirements, certain of which may be onerous or even impossible
for the Company to satisfy. In addition, public agency contracts are frequently
awarded only after formal competitive bidding processes, which have been and may
continue to be protracted, and typically contain provisions that permit
cancellation in the event that funds are unavailable to the public agency. There
can be no assurance that the Company will be awarded any of the contracts for
which its products are bid or, if awarded, that substantial delays or
cancellations of purchases will not result from protests initiated by losing
bidders.

UNCERTAINTY RELATED TO CONTRACTS FOR SERVICES WITH GOVERNMENT AGENCIES

During the nine months ended March 31, 1998 and fiscal 1997, the Company derived
approximately 87% and 72%, respectively, of its services revenue directly from
contracts relating to the DOD and other U.S. Government agencies. Loss of any
material government contract due to budget cuts or otherwise could have a
material adverse effect on the Company's business, financial condition and
results of operations.

During the nine months ended March 31, 1998 and fiscal 1997, the Company derived
approximately 18% and 41%, respectively, of services revenues from T&M contracts
and FFP contracts. T&M contracts typically provide for payment of negotiated
hourly rates for labor incurred plus reimbursement of other allowable direct and
indirect costs. FFP contracts provide for a fixed price for stipulated services
or products, regardless of the costs incurred, which may result in losses from
cost overruns. The Company assumes certain performance risk on FFP and T&M
contracts and the failure to estimate accurately ultimate costs or to control
costs during performance of the work can result in reduced profit margins or
losses. There can be no assurance that the Company's services business will not
incur such overruns for any FFP and T&M contracts it is awarded. In addition,
revenues generated from contracts with government agencies are subject to audit
and subsequent adjustment by negotiation between the Company and representatives
of such government agencies. ANADAC is currently undergoing such an audit for
the period from July 1, 1992 to June 30, 1995. While the Company believes that
the results of the DCAA audit will have no material effect on the Company's
revenues, there can be no assurance that no adjustments will be made and that,
if made, such adjustments will not have a material adverse effect on the
Company's business, financial condition and results of operations. 

RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION


                                       16


<PAGE>   17
During the nine months ended March 31, 1998 and fiscal 1997, the Company's net
product revenues from international sales were 22% and 32%, respectively. A key
component of the Company's strategy is to continue expansion into international
markets. There can be no assurance that the Company will be able to market, sell
and deliver its products in these foreign countries. In addition to the
uncertainty as to the Company's ability to expand its international presence,
there are certain risks inherent in foreign operations, including longer
accounts receivable payment cycles in certain countries, general economic
conditions in each country, seasonal reductions in business activity during the
summer months in Europe and certain other parts of the world, delays in or
prohibitions on exporting products resulting from export restrictions for
certain technologies (such as encryption technology), fluctuations in foreign
currencies, fluctuations in the U.S. dollar which can increase the sales price
of the Company's products in local currencies, loss of revenue, property and
equipment from expropriation, nationalization, war, insurrection, terrorism and
other political risks, the overlap of different tax structures, risks of
increases in taxes and other government fees and involuntary renegotiation of
contracts with foreign governments. The Company is also at risk from changes in
foreign and domestic laws, regulations and policies governing foreign
operations. There can be no assurance that laws or administrative practices
relating to taxation, foreign exchange or other matters of countries within
which the Company operates or will operate will not change. Any such change
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the laws of foreign countries
treat the protection of proprietary rights differently from, and may not protect
the Company's proprietary rights to the same extent as, laws in the United
States.

The Company's international sales are denominated in U.S. dollars, except sales
by Identix Australia which are denominated in Australian dollars. The Company
actively monitors its foreign currency exchange exposure and, if significant,
will take action to reduce foreign exchange risk.
To date, the Company has not entered into any hedging transactions.

DEPENDENCE ON LARGE ORDERS BY CUSTOMERS

The Company's revenues have principally consisted, and will continue to consist
principally, of large orders from a limited number of customers. While the
individual customers may vary from period to period, the Company is nevertheless
dependent upon these large orders for a substantial portion of its total
revenues. There can be no assurance that the Company will be able to obtain
large orders on a consistent basis. The Company's inability to obtain sufficient
large orders would have a material adverse effect on the Company's business,
financial condition and results of operations. Moreover, the timing and shipment
of such orders may cause the operating results of the Company in any given
quarter to differ from the expectations of securities analysts, which could
adversely affect the trading price of the Company's common stock. Losses arising
from customer disputes regarding shipping schedules, product condition or
performance, or the Company's inability to collect accounts receivable from any
major customer could also have a material adverse effect on the Company's
business, financial condition and results of operations.

Orders for the Company's biometric imaging products are often subject to delays
associated with the lengthy approval processes that typically accompany large
capital expenditures by government agencies. The Company's total revenues depend
in significant part upon the decision of a government agency to adopt and
integrate the Company's systems, which often involves a significant capital
commitment as well as significant future support costs. Similar delays may also
be experienced from government agencies procuring the Company's services. The
Company often has a lengthy sales cycle while the customer evaluates and
receives approvals for the purchase of the Company's products or services. Any
significant failure by the Company to receive an order after expending
significant funds and effort could have a material adverse effect on its
business, financial condition and results of operations. It may be difficult to
predict accurately the sales cycle of any large order. In the event one or more
large orders fail to be shipped as forecasted for a fiscal quarter, the
Company's total revenues and operating results for such quarter could be
materially and adversely affected. In addition, even if the Company receives
such an order, the order may be contingent upon availability of matching funds
from state or federal entities or may be canceled or receipt of revenues may be
substantially delayed due to political and budgetary processes.

RISKS ASSOCIATED WITH ACQUISITIONS

As part of its business strategy, the Company intends to acquire assets and
businesses principally relating to or complementary to its current operations.
The Company acquired two companies in the fical year ended June 30, 1996 and
BA&T in July 1997. These and any other acquisitions by the Company will be
accompanied by the risks commonly encountered in acquisitions of companies. Such
risks include, among other things, potential exposure to unknown liabilities of
acquired companies or to acquisition costs and expenses exceeding amounts
anticipated for such purposes; fluctuations in the Company's quarterly and
annual operating results due to the costs and expenses of acquiring and
integrating new 


                                       17


<PAGE>   18
businesses; the difficulty and expense of assimilating the operations and
personnel of the companies; the potential disruption of the Company's ongoing
business and diversion of management time and attention; the inability of
management to maximize the Company's financial and strategic position by the
successful incorporation of acquired technology; the maintenance of uniform
standards, controls, procedures and policies; the impairment of relationships
with and possible loss of key employees and customers as a result of changes in
management; the incurrence of amortization expenses if an acquisition is
accounted for as a purchase; and dilution to the shareholders of the Company if
the consideration for the acquisition consists of the Company's equity. In
addition, the difficulty of integrating certain companies may be increased by
geographic distances. There can be no assurance that the Company will be
successful in overcoming these risks or any other problems encountered in
connection with such acquisitions.

RISK OF PRODUCT DEFECTS AND FAILURE TO MEET PERFORMANCE CRITERIA

Complex products such as those offered by the Company may contain undetected or
unresolved defects or may fail initially to meet customers' performance criteria
when first introduced or as new versions are released. There can be no assurance
that, despite testing by the Company, defects or performance flaws will not be
found in new products or new versions of products following commercial release
or that performance failures will not result, causing loss of market share,
delay in or loss of market acceptance, additional warranty expense or product
recall. In addition, the failure of products to meet performance criteria could
result in delays in recognition of revenue and higher operating expenses during
the period required to correct such defects. There is a risk that for unforeseen
reasons the Company may be required to repair or replace a substantial number of
products in use or to reimburse persons for products that fail to work or meet
strict performance criteria. Any such occurrence could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company does carry product liability insurance, but there can be no
assurance that existing coverage is adequate for current operations or will be
adequate for future operations. The Company's business could be materially and
adversely affected by the assertion of product liability claims.

PROTECTION OF PROPRIETARY TECHNOLOGY

The Company's ability to compete effectively will depend in part on its ability
to maintain the proprietary nature of its technology, products and manufacturing
processes. The Company principally relies upon patent, copyright, trade secret
and contract law to establish and protect its proprietary rights. The success of
the Company's products business will depend in part on its proprietary
technology and the Company's protection of such technology. The Company holds
United States and foreign patents covering certain of its products and
technologies and has other patent applications pending. Identix has an ongoing
policy of filing patent applications to seek protection for novel features of
its products.

No assurance can be given that the claims allowed on any patents held by the
Company will be sufficiently broad to protect the Company's technology. In
addition, no assurance can be given that any patents issued to the Company will
not be challenged, invalidated or circumvented or that the rights granted
thereunder will provide competitive advantages to the Company. The loss of
patent protection on the Company's technology or the circumvention of its patent
protection by competitors could have a material adverse effect on the Company's
ability to compete successfully in its products business. There can be no
assurance that any existing or future patent applications by the Company will
result in issued patents with the scope of the claims sought by the Company, or
at all, that any current or future issued or licensed patents, trade secrets or
know-how will afford sufficient protection against competitors with similar
technologies or processes, or that any patents issued will not be infringed upon
or designed around by others. In addition, there can be no assurance that others
will not independently develop proprietary technologies and processes, which are
the same as, substantially equivalent or superior to those of the Company.
Further, there can be no assurance that the Company has not or will not infringe
prior or future patents owned by others, that the Company will not need to
acquire licenses under patents belonging to others for technology potentially
useful or necessary to the Company, or that such licenses will be available to
the Company, if at all, on terms acceptable to the Company.

Litigation, which could result in substantial cost to the Company and diversion
of management attention, may also be necessary to enforce any patents issued to
the Company or to determine the scope and validity, of other parties'
proprietary rights. For example, the Company is engaged in litigation with a
competitor regarding the scope of a competitor's patent. If the outcome of any
such litigation is adverse to the Company, its business, financial condition and
results of operations could be materially and adversely affected. To determine
the priority of inventions, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office or
oppositions in foreign patent offices, which could result in substantial cost to
the Company and limitations on the scope or validity of the Company's patents.


                                       18


<PAGE>   19
The Company also relies on trade secrets and proprietary know-how which it seeks
to protect by confidentiality agreements with its employees and consultants and
with third parties. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
its trade secrets and proprietary know-how will not otherwise become known or be
independently discovered by others.

RISKS ASSOCIATED WITH MANAGING EXPANSION OF OPERATIONS

The Company has experienced substantial growth in recent years and believes that
in order to be successful it must continue to grow rapidly. If the Company is to
grow rapidly, the Company will be required to expand, train and manage its
employee base, particularly skilled technical, marketing and management
personnel. Rapid growth will also require an increase in the level of
responsibility for both existing and new management and will require the Company
to implement and improve operational, financial and management information
procedures and controls. The Company competes with some of the major technology,
consulting and software companies in seeking to attract qualified personnel.
There can be no assurance that the management skills and systems currently in
place will be adequate or that the Company will be able to manage effectively
any significant growth it experiences and to hire or assimilate new personnel
necessary to pursue its growth strategy. Any failure to adequately manage growth
could materially and adversely affect the Company's business, financial
condition and results of operations.

DEPENDENCE UPON SOLE AND LIMITED SOURCES OF SUPPLY; RISKS ASSOCIATED WITH
IMPLEMENTATION OF LARGER SCALE MANUFACTURING CAPABILITIES

Certain of the components included in the Company's products are obtained from a
single source or a limited group of suppliers, the most important of which are
the charge coupled devices and application specific integrated circuits
("ASICs") for the Bio-ID products and the charge coupled devices for the
biometric imaging products. The Company has no long term agreements with any of
its suppliers. Although the Company seeks to reduce dependence on these sole and
limited sources of suppliers, the partial or complete loss of certain of these
sources or the delay in receiving supplies from these sources could result in
delays in manufacturing and shipping of products to customers. This may require
the incurrence of development and other costs to establish alternative sources
of supply. While the Company attempts to maintain a few months of inventory on
sole source components, it may take the Company several months to locate
alternative suppliers if required, and/or to re-tool its products to accommodate
components from different suppliers. If the Company is required to seek
alternative suppliers, there can be no assurance that the Company will be able
to obtain such components within the time frames required by the Company at an
affordable cost, or at all. Any delays resulting from suppliers failing to
deliver components on a timely basis in sufficient quantities and of sufficient
quality or any significant increase in the price of components from existing or
alternative suppliers could have a material adverse effect on the Company's
business, financial condition and results of operations.

Historically, the volume of the Company's production requirements for the law
enforcement and public sectors has not placed significant capacity constraints
on the Company's manufacturing and assembling capabilities. However, as the
Company begins to market its products for potentially larger volume commercial
applications, the Company may be required to fulfill larger orders in a short
period of time and to implement measures to decrease product costs. There can be
no assurance that the Company will be able to scale-up its manufacturing and
assembling capacities to fulfill such orders and to decrease manufacturing
costs. Any failure by the Company to implement higher volume manufacturing or
reduce product costs for commercial applications could have a material adverse
effect on the Company's business, financial condition and results of operations.

DEPENDENCE UPON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL

The Company's success will depend upon its ability to retain its current senior
management team and key technical, marketing and sales personnel and its ability
to identify, attract and retain additional highly qualified personnel. The
Company's employees may voluntarily terminate their employment with the Company
at any time, and competition for qualified employees, especially engineers, is
intense. The process of locating additional personnel with the combination of
skills and attributes required to carry out the Company's strategy is often
lengthy. The loss of the services of key personnel, or the inability to attract
additional qualified personnel, could have a material adverse effect on the
Company's business, financial condition and results of operations. 

ONGOING LITIGATION


                                       19


<PAGE>   20
On May 31, 1995, Digital Biometric, Inc. ("DBI"), a competitor, filed a lawsuit
in the United States District Court in Northern District of California against
the Company alleging that certain of the Company's TouchPrint products violate a
DBI patent and seeking injunctive relief and unspecified damages. The lawsuit
has no implication for other Identix products. On August 22, 1996, the Court
granted the Company's motion determining that TouchPrint 600 does not infringe
the patent. On December 7, 1996, the Court issued another ruling determining
that the predecessor product of the TouchPrint 600, the TouchPrint 900 product,
did not infringe the patent. As a result, the Court entered judgment in favor of
Identix and awarded Identix its cost of suit. On January 7, 1997, DBI filed a
Notice of Appeal. Oral argument on that appeal was held before the Federal
Circuit Court of Appeals on October 8, 1997 and the matter is under
consideration by the Court.

VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced significant price and volume
fluctuations that may be unrelated to the operating performance of particular
companies. In addition, the market price of the common stock, like the stock
prices of many technology companies, has been, and may continue to be, highly
volatile. Variations in quarterly operating results, the timing and volume of
procurements for the Company's products and services, announcements of
technological innovations or new products or services by the Company or by the
Company's competitors, announcements regarding product pricing by the Company or
its competitors, failure of the Company to meet earnings or revenue expectations
of securities analysts, the commencement of litigation, the developments in or
outcome of any litigation, developments in patent or other proprietary rights,
and economic and other external factors, among other factors, may have a
material adverse effect on the market price of the common stock.

SHARE HOLDINGS OF ASCOM HOLDING

As of May 1, 1998, Ascom USA Inc. ("Ascom"), beneficially owned approximately
18% of the outstanding common stock. This concentration of ownership may have
the effect of delaying or preventing a change in control of the Company. The
Company is a party to a Voting Trust Agreement ("Voting Trust Agreement") with
Ascom whereby Ascom deposited all of its 4,577,824 shares of the Company's
Common Stock ("Voting Stock") into a voting trust ("Voting Trust"). The Trustee
has voting control of the Voting Stock. The Voting Trust Agreement expires in
2004. Ascom has preemptive rights with respect to issuances of the Company's
securities and registration rights with respect to the securities it holds. The
Company's ability to obtain additional financing on favorable terms in the
future may be adversely affected by the existence of these preemptive rights and
registration rights.


IMPACT OF YEAR 2000

The Company is evaluating the products and services it offers, as well as its
information technology infrastructure, in an effort to determine whether the
Company or its customers may have exposure to Year 2000 problems caused by
computer systems that only use a two-digit year value and, accordingly, will be
subject to error or failure when the year 2000 arrives.

The Company has identified certain internal software that requires to be updated
in order to be Year 2000 compliant. The Company believes that it will have this
updating complete by early 1999 and that the expenditure required to perform the
update will not be significant. The Company is also aware that it has sold
certain biometric imaging products that, at the request of the customers, use a
two-digit value for the year. The Company is informing its customers of the
potential issues that may be raised by this feature, but the Company believes it
bears no responsibility for updating these products. The Company is also aware
that its TouchLock I product (which is no longer in production) is not Year 2000
compliant. The Company is in the process of upgrading the software on the
installed TouchLock I products at its cost to make them Year 2000 compliant. The
Company believes that it will complete this updating by early 1999 and that the
expenditure required to perform this updating will not be significant.

The Year 2000 problem is pervasive and complex and there can be no assurance
that the Company has been or will be able to identify all of the Year 2000
issues that may affect its products, services or internal computer systems, or
that any remedial efforts it takes will adequately address any potential Year
2000 problems. In addition, the Company is at risk of disruption to its business
if Year 2000 problems are experienced by the Company's customers, suppliers,
systems integrators, OEMs or other third parties upon which the Company is
dependent for the conduct of its business.


                                       20


<PAGE>   21
IDENTIX INCORPORATED

PART II        OTHER INFORMATION

     Item 1.   Legal Proceedings

               The Company was named as a defendant in a class action lawsuit,
               which was filed in October 1996 in the United States District
               Court for the Northern District of California. Certain executive
               officers of the Company were also named as defendants. Plaintiffs
               sought to represent a class of all persons who purchased the
               Company's common stock between January 31, 1996 and August 26,
               1996 (the "Class Period"). The complaint alleges claims under the
               federal securities laws and California laws. Plaintiffs allege
               that the Company and certain of its executive officers made false
               and misleading statements regarding the Company that caused the
               market price of its common stock to be "artificially inflated"
               during the Class Period. The Company and its officers deny
               plaintiffs' allegations. In December 1997, the Company and its
               officers reached an agreement with plaintiffs and their counsel
               to settle the lawsuit. The settlement was funded largely with
               directors and officers liability insurance proceeds. The
               Company's contribution came from a reserve established in a prior
               accounting periods. The settlement was approved by the United
               States District Court, following notice to the class members, and
               the lawsuit was dismissed on March 6, 1998.

               On May 31, 1995, Digital Biometrics, Inc. ("DBI"), a competitor,
               filed a lawsuit in the United States District Court in the
               Northern District of California against the Company alleging that
               certain of the Company's TouchPrint products violate a DBI patent
               and seeking injunctive relief and unspecified damages. The
               lawsuit has no implication for other Identix products. On August
               22, 1996, the Court granted the Company's motion determining that
               the TouchPrint 600 does not infringe the patent. On December 7,
               1996, the Court issued another ruling determining that the
               predecessor product of the TouchPrint 600, the TouchPrint 900
               product, did not infringe the patent. As a result, the Court
               entered judgment in favor of Identix and awarded Identix its
               costs of suit. On January 7, 1997, DBI filed a Notice of Appeal.
               Oral argument on that appeal was held before the Federal Circuit
               Court of Appeals on October 8, 1997 and the matter is under
               consideration by the Court.

     Item 6.     Exhibits and Reports on Form 8-K.

                      (a) Exhibits

                          Exhibit
                          Number            Description

                          27.1              Financial Data Schedule

                      (b) No reports on Form 8-K were filed by the Company
                          during the quarter ended March 31, 1998.


                                       21


<PAGE>   22
                              IDENTIX INCORPORATED

                                   SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                      IDENTIX INCORPORATED





May 14, 1998                          BY:      /s/James P. Scullion
                                         -------------------------------
                                      James P. Scullion
                                      Executive Vice President,
                                      Chief Financial Officer and Secretary



                                       22


<PAGE>   23
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT 
NUMBER                        DESCRIPTION
------                        -----------
<S>                      <C>
27.1                     Financial Data Schedule
</TABLE>


                                       23